Tips on how to refine my system

[Mr Valand]

Hi Guys,

I am a newbie trader and have just started trading virtually with a demo account from capital spreads to test out my system.

These are the basics of my rule:

1) Market conditions must correlate with target stock (if I am looking to go short on HSBC, banking sector must be in a downtrend and so must FTSE 100)

2) Fundamentals/News must correlate with direction of trade (I won’t go long on a company who just announced a fall in profits etc. Fundamentals will be used for stock selection only and not influence trading decisions.)

3) Chart reading – Trending or about to breakout. Pattern reading, bar analysis. A break of support or resistance

4) Price action makes higher highs or lows after breakout

5) 5 day MA crosses 20 day MA.

6) Volume supports a breakout or reversal.

7) RSI is signalling overbought or oversold

8) ATR is low/predictable

9) Enter trade the next day when market opens only when price is above or below todays close (depending on direction of trade).

Now the main issue I have seen so far is my system is really slow at picking up trends and the main culprit is the MA crossover. Everything says buy, all systems are go, but I am sitting waiting for the crossover which only comes once the trend has already matured. Whats has really frustrated me in recent days is my rule has signaled buy (apart from the MA crossover) and then the next day news has come out and the stock has risen sharply. 2 examples would be ITV and LLOYDS, both of which I did not enter as I was waiting for the crossover.

I've tried using 5/10, but then this just seems to quick at times. I know this is a common problem when using MA's so if anyone has advice on how to tighten things up or who uses MA's successfully please share. Or maybe I should stop using MA's altogether?

Thanks,

Bhavin

 

[tomorton]

Hi Mr Valand - I don't trade in your style but I recognise the above - this is a dream-team trading plan, a fantasy football system. It's picking a signal from every common indicator with the hope that if 9 of them all say the same thing at the same time, risk will be almost 0%. In practce, you're going to have to decide on your 1st or 2nd or maybe even 3rd trade which 2 or 3 you will run with, regardless of the others. For an example of really paired-down successful trading breakouts etc. see the YouTube clips by Phil Newton. If memory serves me correctly, he just uses price.

In most fields of enterprise, more study and more work equal more success. This rule does not apply in trading.

 

[Jason101]

Hi Guys,

I am a newbie trader and have just started trading virtually with a demo account from capital spreads to test out my system.

These are the basics of my rule:

1) Market conditions must correlate with target stock (if I am looking to go short on HSBC, banking sector must be in a downtrend and so must FTSE 100)

2) Fundamentals/News must correlate with direction of trade (I won’t go long on a company who just announced a fall in profits etc. Fundamentals will be used for stock selection only and not influence trading decisions.)

3) Chart reading – Trending or about to breakout. Pattern reading, bar analysis. A break of support or resistance

4) Price action makes higher highs or lows after breakout

5) 5 day MA crosses 20 day MA.

6) Volume supports a breakout or reversal.

7) RSI is signalling overbought or oversold

8) ATR is low/predictable

9) Enter trade the next day when market opens only when price is above or below todays close (depending on direction of trade).

Now the main issue I have seen so far is my system is really slow at picking up trends and the main culprit is the MA crossover. Everything says buy, all systems are go, but I am sitting waiting for the crossover which only comes once the trend has already matured. Whats has really frustrated me in recent days is my rule has signaled buy (apart from the MA crossover) and then the next day news has come out and the stock has risen sharply. 2 examples would be ITV and LLOYDS, both of which I did not enter as I was waiting for the crossover.

I've tried using 5/10, but then this just seems to quick at times. I know this is a common problem when using MA's so if anyone has advice on how to tighten things up or who uses MA's successfully please share. Or maybe I should stop using MA's altogether?

Thanks,

Bhavin

Hi Mr V,

I do not want to be rude, just trying to help,

You have only described a very small part of your system, the entry.

The much much greater part of a system and in my opinion more important is position sizing, all your exits, all for take profit, all for stop losses and all for scratch trades and trade management.

 

[Jason101]

The above could be thought about in conjunction with Goals, objectives and time management.

 

[Mr Valand]

you are right i have not included other aspects such as money management and exit. i don't think i was very clear in the original post. i wanted specific feed back on my entry rule and in paticular, how to speed up the entry. i feel it is very slow when it comes to generating a buy signal.

i assure you i do have money management rules and an exit rule, but for this post i wanted specific advice on the above.

 

[Jason101]

After all that research, you must be a longer term trader than a day trader, you have your stops set up, so why not just be happy with point 9 as an entry? Do you really need any more? Sure we would all like a crystal ball.

 

[Mr Valand]

that is correct, i am a longer term trader. my time frame is between 1 - 12 weeks. i just think my entry rule is abit slow when it comes to identifying a trend based on the results so far. I'm not looking for a crystal ball. I'm just a new trader wanting some advice. That's all.

 

[EricReed]

Hi Guys,

I am a newbie trader and have just started trading virtually with a demo account from capital spreads to test out my system.

How can you have developed a trading system if you are new to trading??????????

Come on that is just silly

 

[Jason101]

that is correct, i am a longer term trader. my time frame is between 1 - 12 weeks. i just think my entry rule is abit slow when it comes to identifying a trend based on the results so far. I'm not looking for a crystal ball. I'm just a new trader wanting some advice. That's all.

I am trying to help, which is hard because trading is so personal.
I just think that with your set up criteria and your longer term holding times in weeks, you do not need to time your entries any lower than the daily break out.

All your profit and loss is determined by exits for loss and your exits for profit. If it breaks out on daily time frame why not just enter. Do you really need to wait for a lagging indicator to tell you retrospectively that price broke out? By this time you may have missed out on some of the move (making your stop larger). With stop losses smaller than your take profit. If you lose a few then so what? It does not matter, with correct position sizing (relative to account size) as long as your wins are greater than your losses to the degree that your wins can outride the amount of times you lose. Just do the maths to put your mind at rest.

 

[Mr Valand]

Ah I see. Waiting for MA crossover is just delaying my entry and in that case I probably shouldn't use it in my entry rule. That was kind of what I was thinking and just neede dto hear from someone wiser then myself.

Thanks

 

[Pferd]

Ah I see. Waiting for MA crossover is just delaying my entry and in that case I probably shouldn't use it in my entry rule. That was kind of what I was thinking and just neede dto hear from someone wiser then myself.

Thanks

Try:

EMA 20 (+10 horizontal shift)
&
EMA 15 (without shift)

That is more precise. But really bear in mind that all these indicators and oscillators are late giving signals. And they are all based on the price anyway. Which leads to my only proper advice: forget all this complicate information and concentrate in how to trade with Price Action.

That way you cut out the "middle man".